The report provides a description of how the MTA evaded public
scrutiny of its finances from 1999 until the end of 2003, and
the consequences of that deception. It provides summaries of
the audits of the MTA by the State and City Comptrollers, the
various reform initiatives advanced by members of the Legislature
and Comptroller Hevesi, and the issues surrounding the fare
increase controversy. Finally, the report shows that the
Legislature and the Governor must confront the escalating
financial problems of the MTA, which the State Comptroller
noted may be facing up to a $1 billion deficit in 2005.

"The MTA hid its deficits for years after 1999 through
the use of one-shots and prepayments of its future
obligations," Mr. Brennan said. "Only after the
November 2002 gubernatorial election did it begin to reveal
its financial problems, and only after its finally released
financial plan, nearly four years later in October 2003, did
it show its true picture - multibillion dollar deficits for
years to come due to heavy use of borrowed funds to finance
its capital plan."

By obscuring its true financial situation, up until Governor
Pataki won re-election in November 2002, the MTA did not make
it clear to the public and the Legislature that one-shot
resources from debt refinancing were covering operating budget
shortfalls. At the same time, the 2000-2004 capital plan was
financed by incurring new debt nearly twice as high as in
prior plans, straining future operating budgets with
extraordinary amounts of debt service costs. In hindsight,
this strategy seems to have been designed in order to insure
that all the MTA's financial problems would not be revealed
until after the 2002 election year.

It is only now becoming clear that MTA financial practices have
generated a situation where enormous financial burdens have
been shifted to future years. Only nine months after fare and
toll increases took effect, the MTA is again projecting large
deficits for the coming years. The MTA now maintains that it
will keep current fares, tolls and services only through 2004.

The MTA's latest financial plan released in October 2003 once
again does not clearly identify the sources of non-recurring
revenues and the transfer of funds from one fiscal year to
another. Transparency is further hindered by lingering problems
including discrepancies among the different operating agencies
in the accounting systems, only partial disclosure of budget
assumptions, and the revision of base estimates as a means to
reconcile gaps between projected and actual revenue and expense
figures.

In addition, since the introduction of fare discounts, ridership
has risen significantly, while revenues have risen at a much
slower pace. For years now, but specifically in connection
with the 2003 fare and toll increase, the impact of these
discounts have been estimated, yet little to no research is
presented on the accuracy of these estimates. The MTA is now
saying it may raise fares in 2005 by eliminating discounts.
While the impact of such a step is likely to be in the hundreds
of millions of dollars, there is very little understanding or
documentation of this issue.

The persistent lack of transparency and accountability is
compounded by existing inequities in the fare structure, which
place a greater burden on the City's mass transit riders
compared to the percentage of operating expenses covered through
the fare box by suburban commuters. The City Comptroller, as well
as transit advocates, have pointed out that the last fare
increase has exacerbated rather than ameliorated these
inequities. This fact, as well as the MTA's discretion over
the internal allocation of certain tax-based revenue sources,
belies the MTA's claim that inequities in the fare structure
are solely the outcome of policy choices made by its governmental
funding partners.

After reviewing the MTA's latest financial documents, the State
Comptroller has made it clear that the MTA is still not
acknowledging the true extent of its precarious long-term
financial outlook. While MTA finance issues have largely
disappeared from the public radar screen for the time being,
the agency is sitting on a financial time-bomb, ready to
explode in 2005.

Reform initiatives, designed to improve the information flow
from the MTA to the Legislature and the public, are essential
to restore credibility to the MTA and its budgetary process.
Assemblymember Brodsky has proposed a radical overhaul of the
MTA to place its fares, contracts, and finances under outside
independent control. Assemblymember Brennan's legislation
requires specific reporting guidelines as part of the MTA's
legal statutes and ties certain financial disclosure provisions
to the MTA's legal mandate to hold public hearings before fare
increases. The lack of such provisions enabled the MTA in 2003
to push the fare increase through the challenge of a legal
suit, which had charged the agency, based on the State
Comptroller's discoveries, with making a sham out of the
public hearings.

These proposals, in combination with new reporting regulations
issued by the State Comptroller are of foremost public interest,
particularly in light of the next looming fare box debacle,
likely to occur in 2005.